FUND QUERIES

FUND QUERIES
Source: express money
Of late, fund houses have started charging entry loads or have increased it. Some are even charging an exit load. Does that call for any change in how I make my investments?

Till a few months ago, for the small investor, the load structure was such that regular investments made through an SIP (systematic investment plan) worked out to be more cost-efficient than one-off ones. In SIPs, there was no entry load and an exit load only if you redeemed before one to two years, the idea being to encourage regular investments, loyal investor base and a longer-term investment horizon. By comparison, on one-off investments, fund houses charged an entry load of 2.25 per cent and, in some cases, even an exit load of 1 per cent if you redeemed within one to two years.


Now, there’s parity. On most of their schemes, most fund houses have extended the load structure on one-off investments entry load of 2.25 per cent, exit load of 1 per cent if you redeem your investment within one to two years to SIPs too, neutralising their cost advantage.

So, what does this mean for you? Should you continue with your SIP? The answer to that depends on your reasons for taking the SIP route in the first place. If cost-saving was your objective, then the SIP option doesn’t help anymore. If it was to discipline yourself to invest regularly and do away with the trouble of trying to time your investments, the SIP option is still meaningful to you.


Exit options

I invested in mutual funds last year. It was done in the traditional way that is, not using any online trading systems. I want to exit now. How do I do that?

Your fund house and/or its registrar sends you an account statement from time to time. If you examine it closely, you’ll see perforated forms for redemption (apart from other forms for additional purchase, switches, and change of address/bank mandate, among other things).
Fill up the redemption form it’s fairly straight-forward and self-explanatory and mail it to the address, which is usually stated on the back of the account statement. If your account statement doesn’t have the required information, take it from the website of your fund house. If you still feel uncomfortable, take the help of a distributor or financial advisor. If you invested through them, they should be willing to guide you in this process.


ELSS
My investment in HDFC Tax Saver, an ELSS, will complete three years next month. Should I redeem or stay invested?

HDFC Tax Saver has been a consistent performer over the years. Value Research, an independent agency that ranks mutual funds by performance, gives the scheme its highest rating. Therefore, unless you need the money, stay invested even if you have completed three years in the scheme.

Empirical evidence clearly shows that ELSS have consistently done better than open-ended diversified equity funds. The major reason for this is that investors in ELSS are predominantly, if not fully, individuals, and their investments are subject to a lock-in period of three years. That enables a fund manager to invest without worrying about sudden outflows and other external factors.

There is one instance, though, in which redemption is a smart strategy to maximise your tax savings. Suppose, due to a savings crunch, you are unable to maximise your Section 80C investments of Rs 1 lakh for the year. Since your ELSS investment has completed three years, you can withdraw it, in part or in full. So, redeem the amount you need to invest to complete your tax saving, and reinvest it in the same, or another well-performing, ELSS. You don’t have to pay any tax, as long-term capital gains are tax-exempt. The only extra cost you incur is an entry load of 2.25 per cent, which is a fraction of the tax you are going to save by reinvesting in an ELSS 30 per cent of the amount invested in the highest tax bracket.